ULIP (Unit-Linked Insurance Plan) is one of the most popular investment options available in the insurance market. ULIP plans offer the freedom to explore the vast domain of investment market at the same time offering risk coverage component.
There was a time when mutual funds and share market were collectively dominating investors’ investment portfolios. During the time, the ULIP policies were introduced in the market to attract the customers with a promise of higher returns on their investments. Over the course of time, ULIP policies have become the most popular investment entities among the investors as they come with the dual benefit of wealth maximization and insurance cover.
What is ULIP?
ULIP plan is an insurance tool which gives the buyers access to investment options along with the feature of risk coverage. With ULIPs, the buyers get a platform to invest in different investment tools including bonds, stocks, mutual funds, etc.
In simpler words, types of ULIP policies can be referred to as dual benefit policies which offer investment and protection benefits to the investors. The best part is that these benefits can be customised depending upon the individual needs. Being a comprehensive plan, it provides leverage to the investors to manage the investment and protection components according to their specific choices & needs.
Types of ULIP Policies based on Investment Funds
Fixed Interest & Bond Funds
These funds are famous for providing returns in a timely manner. Insurance companies invest in corporate bonds, debt funds, government securities, etc. to get fixed returns. In addition to that, these funds have a higher risk factor as compared to Cash Funds. Fixed Interest & Bond Funds are a mix of secured & unsecured investments.
Cash funds fall into the low-risk category and are said to be the safest investment option available in the market. These funds provide the investors with a set amount of returns once the fund has completed its maturity and hence are also known as money market funds.
Equity funds have the highest risk factor amongst different investment options. These funds primarily invest in equities and companies’ stocks. Due to this, these funds are also able to deliver the highest returns for its customers. The individuals with higher risk appetite should definitely invest in equity funds.
Balanced Funds are one of the most prudent and stable investment options. Their working mechanism is to vary the investment amount that goes to different places. The companies invest the premium amount of the investors in fixed components such as corporate bonds & varied components such as the stock market. Due to this arrangement, balanced funds are considered as a medium-risk investment option.
Types of ULIP Policies Classified Based on their Purpose
ULIP Policies for Retirement
These plans require buyers to pay the premium amount during the tenure of their employment. The premium amount will be accumulated as a financial corpus and is used to buy an annuity after one gets retired.
ULIP Policies for Wealth Collection
This is a highly favoured plan among the new millennials which helps them accumulate wealth over a period of time. It gives them the flexibility to fund their future goals without any further delay.
ULIP Policies for Children Education
There are certain ULIP policies that also support a kid’s education. These plans help the investors protect their kid’s future in case of any unforeseen eventuality by pooling in money from the investment made by the buyers.
ULIP Policies for Health Benefits
Besides the aforementioned benefits, there are certain types of ULIPs policies that help investors receive money in medical emergencies.
Types of ULIP Policies – Classified Based on Death Benefit
There are 2 types of ULIP policies available in the insurance market, based on death benefit:
Types 1 ULIP Policies
Under these ULIP policies, the beneficiary will receive the higher of Sum Assured or Fund Value as the death benefit amount. However, in case of unfortunate demise of the policyholder in the initial years of the policy tenure, when the fund value is still lower than the sum assured amount, the insurance company will pay the agreed sum to the nominee of the policyholder.
Types 2 ULIP Policies
The policyholder’s nominee receives the sum of both i.e. Fund Value and Sum Assured in case of unfortunate demise of the life assured. The insurance provider usually charges extra for additional risk that is covered under the type II policy.
Now, as you are aware of all types of ULIP policies available in the insurance market, you will be able to ask detailed questions in the context. It will eventually help you make an informed decision. However, above all, simply remember that the best time to start now!